Solar Leases Attracting New Demographic

WASHINGTON, D.C. --
The sun is shining on homeowners in less affluent neighborhoods who are discovering they can afford solar energy after all — by leasing rather than buying the panels on their roofs.

The new business model lets homeowners save money the very first month, rather than breaking even a decade after an initial investment of $5,000 to $10,000.

Analysts with the U.S. Department of Energy's (DOE) National Renewable Energy Laboratory (NREL) found that the solar lease business is surging in southern California. And the model is being adopted in less affluent neighborhoods that had avoided customer-owned systems.

The NREL study found a positive correlation between customers outright buying solar energy systems and customers living in neighborhoods where the average household income was $150,000 or more.

But for third-party-leased solar panels, that positive correlation appeared in neighborhoods where the average household income was just $100,000 or more.

The study did not look at individual adopters, who can have many different reasons for installing solar. Still, the study strongly indicates an attraction for third-party leasing in neighborhoods with less affluence than those most likely to go for the customer-owned option.

If what's true in southern California proves true for the nation, it means that rooftop solar power could attract an additional 13 million Americans — and that could push solar energy into the mainstream.

"What is so interesting about the southern California data is that the strong decrease in PV prices — from lower retail costs and stronger federal incentives — didn't pick up a new demographic," Drury said. "But a new business model — leasing — did pick up a new customer demographic."

Repackaging the value of photovoltaics (PV) as a simple savings on the monthly electric bill is an attractive alternative to the pitch that it will pay for itself in a decade, he said. "If someone comes up to you and says you can make money next month and forever, that totally changes how people see the value of solar."

Heather, Kit, and Grace Lammers check out their new net meter that measures the solar power generated against the power use for their solar lease. They expect their $107 average electric bill to drop to about $41 per month now that they've leased solar panels. The lease is costing them $64 per month.

Immediate Savings is a Lure

The differences in upfront costs are stark between buying and leasing. Heather and Kit Lammers put $3,000 down for a 5.64-kilowatt system that is providing 62% of the electricity for their two-story home in Erie, Colorado. If they had bought the system outright, they would have had to pay more than $9,000 with incentives, or as much as $20,000 without incentives.

The Lammers had been averaging $107 per month for electricity. Now, they're paying $64 per month to lease the solar panels, plus $41 per month to utility Xcel Energy, which represents the 38% of their electricity use that won't be offset by solar energy.

That gives them only $2 per month in savings the first year. But the real benefits come over the next two decades, when that $64 lease payment stays constant while, presumably, the price of fossil-fuel-powered electricity rises with inflation. When their two-year-old graduates from college, the Lammers will still be paying the equivalent of 12 cents per kilowatt-hour through their solar lease arrangement.

Estimated total savings for the Lammers, after recouping their original $3,000 down payment, is more than $9,000, according to their solar provider, Solar City.

NREL Employees Bring Their Work Home

At NREL, where scientists and researchers are on the cutting edge of renewable energy and energy efficiency, an unofficial motto is "walk the talk."

Heather Lammers is one of several NREL employees who are embracing the solar lease model, in which the company keeps the state and federal incentives, but the customer enjoys the lower total electricity cost.

"Solar on our home was something we've wanted but thought we'd never be able to afford because of the upfront costs — even with the incentives," Lammers said. "When we first heard about solar leasing, we jumped at the opportunity. It has made something we thought to be unreachable a reality."

NREL analyst Michael Mendelsohn signed on with Solar City and selected the company's "$0 Down Plan" with no upfront cost. He pays just $22 per month to lease a 3-kilowatt system, which covers most of his electric bill and already gives him a net savings each month. Mendelsohn is something of an energy miser: he never runs air conditioning, has installed efficient lights, has all ENERGY STAR® appliances, and hangs the laundry to dry.

On the other hand, "I have a giant TV and kids who never turn off the lights," he said. "It's a great feeling to get free electricity on a sunny day."

NREL market analyst Lori Bird bought her system outright two years ago before third-party leasing was much of an option. Namasté Solar installed a 5-kilowatt system on her family's two-story house in Boulder. "It covers most of our electricity use," she said. "We refinanced our house and rolled it into the new mortgage. We save more from the PV system than we pay extra in mortgage."

Sun Can Power Electric Cars

My wife and I put $5,000 down for a system that will provide 120% of our current electric needs. The panels, designed by SunPower and provided by Independent Power Systems, fit on our steeply pitched detached garage, facing south.

Our monthly lease payment is $13.

There is room for two more panels on the garage, but 120% of current electricity usage is the limit set by most utilities, including ours. We will get a small check back from our utility once a year because we'll send more power onto the grid than we use.

Our long-term plan is to buy an electric vehicle that has a range of about 80 miles and can be recharged in the garage each night. Once that extra draw of electricity starts to appear on our electric bill, we'll be eligible to install a couple more panels. With the help of light-emitting diode (LED) light bulbs, we hope to get all our household electricity needs and about two-thirds of the electric car's fuel needs via the sun.

Solar Prices Dropping Sharply

The steep drop in the prices of solar panels also has played a significant role in the growth of the solar market. Solar cells are being made for fewer dollars, and the costs of putting together the rest of the system and installing it are dropping, too.

The average installed cost in 2008 was about $9 per watt. That dropped to about $7 per watt by early 2011 — and now there are indications that the latest residential installs are costing less than $6 per watt.

In 2008, there was a shortage of polysilicon, a main ingredient in many solar cells — so demand outpaced supply, driving up costs. Since then, silicon prices have dropped.

Among Drury's other findings:

Third-party leasing usually eliminates the need for home-equity-style financing and thus the need for significant equity in the home. Without the hurdle of financing, more people can adopt solar, Drury said. "Not just the people who buy Priuses or who are the first to buy the latest electronics." The benefits provided by third-party ownership — lower upfront costs, secured financing, less complexity and risk, immediate savings on the monthly electric bill — can entice a broader base of customers to adopt PV, he said.

Along with the lower income threshold, Drury found a surge in solar leasing in neighborhoods with younger families.

In the Los Angeles and Orange County markets, customer-owned PV was five times more prevalent than third-party-owned PV in 2009. In 2010, the ratio had dropped to 2:1. And for the first quarter of 2011, the ratio was almost even.

Prices Vary, So Shop Around

Drury notes that lease terms vary significantly between different companies, so it is best to shop around.

What makes most sense to you? A low down payment with higher monthly lease payments? A down payment just high enough to start saving month to month?

Find out whether the lease terms will stay the same for 20 years or, say, rise 3 percent a year to counter inflation.

Prices have dropped so much in the past three years that some traditional price comparison websites might be out of date.

Homeowners contemplating leasing solar panels should read what they can and then make sure they compare prices offered by several solar lease companies, Drury said. "You do see a wide range of prices, so you want to be sure you're getting a good deal.

"Definitely do as broad a search as you can to see what the different offerings are," Drury added. "And make sure you understand the terms of your lease."

26 Comments

Anonymous, the third party gets paid several times via money that you, the lessee forfeit. Two from the utility and two from the tax system. This is in addition to any lease payments.

1. Solar Renewable Energy Credits (SRECs) paid by the utility to meet renewable energy mandates passed on a state by state basis
2. Rebates, also from the utility, because the grid is outdated and not big enough to handle current loads
3. Tax credit, as the owner of the system
4. Depreciation after five years (I don't understand it, but I hear it can be quite a profitable tax wise)

I hope that helps, and if you are looking to lease, I recommend a pre-pay or at least be sure to get a non-accelerating payment. Costs do not necessarily ALWAYS go up. Just look at our current housing market.

ANONYMOUS
April 16, 2012

can anyone explain the business model of a solar lease? To me, i dont understand how a 3rd party(leaser) legally gets there money back on a lease.

Example:
3rd party install $25,000 of solar. You legally have to pay out the $25,000 to receive incentives, right? So you pay your distributor and installer, lets say a total of $20,000, for round numbers sake, who does this extra 5000(profit) go too and how does it circle back to the Leaser? Legally

on top of this, the 3rd party is receiving a monthly lease payment receive

Does the 3rd party own the install and "distributor" company?

I have an idea of how it works but i am trying understand the how the money is transferred around, legally.

Where can i go or who can i talk to about the business side of a lease?

ANONYMOUS
April 16, 2012

Huckster-
And that "purchase" price was inflated by 80% before you showed it to the lessee.
Such a great offer!
P.T. Barnum would be proud.

Once again, the arrogant Solar Leasing Police are clearly on the prowl in this comment stream -- and many other comment streams I've seen on REW.Com, and elsewhere. Someone's gotta take them on. So I did, here -- http://solarchargeddriving.com/going-solar/leasing-vs-buying/946-solar-leasing-police-say-buy-your-solar-or-else.html

Bring it on Solar Leasing Police ;-)

ANONYMOUS
April 13, 2012

Appear that some exchanges are being edited out of this comments section--perhaps a commenter's employer saw how embarrassing things were getting and took some legal action?? Or did an advertiser make a call to RE World?
We will never know.
Fact: the current demographic being targeted are those at the margin (financially) that want to be "green" and aren't educated enough to understand the implications of the lease terms. ALL residential lease offerings are pushing almost all of the risk on the lessee--that is why the banks are financing these deals (they can't lose since they rigged the lease terms). The ONLY way the homeowner also "wins" is if electricity pricing goes up 4% or more each year forever. Banks win either way.

I think those that argue that leases don't make financial sense are talking too much logic, and not enough emotion. Installing solar involves financial risk, but gives some personal satisfaction. There are lots of things we do that covers those two emotions. Extended warranties give "peace of mind", and recycling "does good". If I can install solar, and spend what I'm spending now, I feel good. It is okay with me if someone else makes money on assuming the financial risk.

ANONYMOUS
April 12, 2012

To be unveiled at Abu Dhabi's World Future Energy Summit 2013 in January is the assembly of the major components of a zero energy house (ZEH)in app. 30 minutes. The 10 primary fiber composite wall and roof panels can be fabricated in five minutes. BIPV's are applied in the production process. Solar is no longer a costly afterthought.

In January, Hyundai E&C announced it has a goal to be the world's largest construction company. They already employ 100's thousands of workers in the Middle East.

On March 22, Saudi Arabia announced plans to provide 500,000 affordable homes.

Hyundai is the world's largest shipbuilder. A plan to convert vessels to mass-produce this standard is in discussion, responding to rebuilding programs. FEMA could deployed such a vessel on the aftermath of hurricane Katrins. Instead, FEMA ordered trailers...a billion dollar blunder.

Universal sustainable "Hydundaivilles" would echo Henry Ford's Model T that put the world on wheels. Who believed 20 years ago that cell phones would outnumber land phones? So too will be a ZEH standard. GE launched a ZEH standard goal by 2015. It shut the objective in 2010.

Hopefully Hyundai E&C will establish production in the USA.

ANONYMOUS
April 11, 2012

Jones Solar-
If you are paying less than $1/W for modules, then you are either buying orders greater than 10MW or junk/3rd tier modules with a worthless warranty.
I'm calling your "American made" bluff: What is the brand name of your cheap modules?
btw--I feel sorry for your customers.

In reference to the folks in TX and other states that are installing solar for under $3.00 per watt....

First off, as an industry, we should be focused on delivering long-term economic value to our clients --- not installing the cheapest equipment we can find with the cheapest labor available.

a few questions?
What kind of junk are you installing for $3.00/watt (wholesale rates on mediocre panels alone are $1.17/watt)? I spend more than $0.25 per watt just on leak prevention. Also, what kind of labor are you using? Is it legal to pick people up at the train station? How about Insurance? Do you need a structural engineer to review/stamp your diagrams? That's an easy $0.10/watt for a decent architect/structural engineer.

For consumers that are reading this --- Please remember that you get what you pay for --- i have seen some really bad installations from guys that install on the cheap --- they look like !@!@, leak, and perform even worse.

ANONYMOUS
April 10, 2012

Amazing that the banksters (hiding behind a solar cloak) continue to fund such redistribution of wealth--from the poor to the rich.
Yet the press is silent?...and the "party" continues.

With the car, you drive off the lot and the car loses value - then continues to lose value every day you drive it.

With solar, the system starts by providing value in the form of clean electricity, but over time, the value of the electricity produced by the system vastly outpaces the cost of the system. Because solar is way better value than fossil fuel when factored over time, in the long run the property owners save money, the investors make money, and the middle class has access to solar power. Win. Win. Win.

We're used to losing money on cars, but the idea of saving money with solar is still new to us - thus all the cynics in this thread.

Sure, there are better and worse solar leases out there. Check this out if you're curious: http://www.lighthousesolar.com/solar-financing/

I was out visiting my mom in San Bernardino last week and gave this speech to the City council last Monday.

I was talking about Parity with the leasing programs. I told them that putting solar on your home through a leasing program is cheaper than your utility expenses, especially with your tiered system. It will play a major role in turning around the economy of this region.

It was probably a speech made to deaf ears because San Bernardino has the 2nd highest unemployment rate of any city in the country and all they want is more cops. The county has the highest incarceration rate in the country and all they want is more cops too. San Bernardino County is so screwed. I'm glad I left there 2 years ago.

$1 to $1.2 Bos and inverters also American made and what, Texas made as well.

$.8 to $1 Install and permits. Permits can range depending on the city from a $75 electrical permit to 2% of project cost in others.

Am I getting rich? No but if I can pay the bills I am happy.

I do some sub contracting for big wholesalers and gsa contractors and they pay between $.7 and $1 watt for installs. Which include my electrician and me pulling permits so the end result is pretty much the same whether I sell it for $3 watt or install for someone else.

So lets address the leases again.

If my customer does a PREPAID lease they are receiving a 20 year warranty and service contract. Any problems such as inverter replacement, panel replacement or power production is covered for free for 20 years.

Is the leasing company going to pay me in 20 years $.7 to $1 watt to remove the system off of their roof?

I think not, because they will also have to warranty the now system less roof for water and working damage as well.

Am I wrong? I do not know. I may not have an M.B.A. or be a Rhodes Scholar but I am and have been in the trenches pounding it out for my whole life. And the one thing I do know is someone has to physically do the work and get paid for it or nothing gets done.

There is an obvious correlation between income and solar leases because there is a direct correlation between education and solar leases. (Yep, there is a lot of fine print). In Massachusetts, the MA CEC reports the price per watt of all installations, so for example, the large national players (principally from CA), show an installed price of $6.85 and $7.86 per watt while the average installed price here is $5-6 per watt for residential. If you start from an inflated price, then take the 30%, then take depreciation (as commercial), then the lowered upfront prepaid lease or monthly payment, then the solar company or financier is making a heck of a lot of money and the customer is getting much lower benefits than they could have. Then the customer still owes for the FMV at the end of the lease period. We looked at a number of these for some who became our customers and some who didn't. One that didn't go with us argued that he was still getting the SRECs, but the lease clearly states that the electricity cannot be stipulated or considered as solar. On another lease, our after-incentives price was $22,000 while the pre-paid lease was $28,000 - with the buyout/renewal/removal clause (FMV would be at least $10,800). Leases make sense only if you do not have the tax appetite (retired, low income), but they are still rip-offs. PACEs are a much better way to assist the low income - Property Accessed Clean Energy (the financing gets added to your mortgage payment).

Frankly, I think leases are the biggest ripoff for the uneducated and a mark of the swindlers that have entered the solar Gold Rush market. They remind me of payday loans - part of our fabric, but not very nice cloth....

For clarity, my point was not that all systems are in the $5-6/Watt category, but simply that it is not out of the question in response to the "collusion" point above. With real rock, steep slope, ground mount conditions I have still seen that $6+. The scams have been people charging $6-9/W for simple roof-mount, and most of that is getting wiped out at this point (thank God). I've seen them down to $3.65/W and most of the residential ones are in the low $4-something/W category at a least if installers know what the heck they are doing.

The one thing that I really wish we could get sorted out here in Northern Nevada is permitting. Dropping up to $1,000 on a small system for permitting and inspection fees is ridiculous. Seems like many of our building departments locally have been surviving on solar permits alone for the past three years.

For clarity, my point was not that all systems are in the $5-6/Watt category, but simply that it is not out of the question in response to the "collusion" point above. With real rock, steep slope, ground mount conditions I have still seen that $6+. The scams have been people charging $6-9/W for simple roof-mount, and most of that is getting wiped out at this point (thank God). I've seen them down to $3.65/W and most of the residential ones are in the low $4-something/W category at a least if installers know what the heck they are doing.

The one thing that I really wish we could get sorted out here in Northern Nevada is permitting. Dropping up to $1,000 on a small system for permitting and inspection fees is ridiculous. Seems like many of our building departments locally have been surviving on solar permits alone for the past three years.

Yes, there are some very cheap panels out there right now. These are largely "desperation deals" as manufacturers keep striving to shed inventory, and don't reflect the true cost of PV. We can't expect this to be sustainable, and shouldn't set our price expectations based on this behavior. A lot of the companies offering this level of pricing will not be around to support their warranties, which could mean major exposure for resellers, installers, and homeowners, so we should be cautious about which deals we jump on.

You can't calculate the ROI of a lease without knowing the end-of-lease cost - see my comments above.

Well written Bill. I thought SolarCity had been doing 15 years, though the returns for lessor are definitely much better at 20-years… and I guess, according to this, people are going for the 20-year ("two decades"). I have seen for the big companies I definitely like doing the flat power rate, I am curious if anyone has been doing a mild annual escalation like you see in PPA's for residential solar leases? Or like you say, " rise 3 percent a year to counter inflation"?

I am not familiar with the end-of-lease terms that SolarCity et. al. are using at this point so I guess I have some digging to do (good point Boaz).

Not sure what Anonymous means by collusion giving the $6/W. Recently for small systems based upon materials cost plus a marginal 20% markup and labor in Northern California and Nevada you are easily looking at $5/Watt. Add some complexity, ground-mount or otherwise, and $6/W is not out of the picture, though it is getting to be on the high end.

My biggest concern is that module prices may be too low currently because of oversupply and Chinese saturation. I feel that with the beginnings of political awareness of "unfair trading practices" by the Chinese, we may soon see temporary increases in the US prices in 2012-2013. One very promising bit I see on the other side is 330W+ modules some manufacturers are getting out there.

Leasing is a very bad idea when it comes to solar panels; you are stuck with a new never ending payment and with very little to no return for your investment. Solar prices and installing will drop to an affordable level for the lower income people quickly where you can purchase and install your own solar panels. There are government agencies that will help you do that and your solar panels may be provided to you free...check with your Community Action Program before you take that leap, or wait a couple of years before you stick your feet down into that pan of boiling hot oil. I have not seen a leasing contract or a two year contract yet where you don't eventually get burnt or ripped off big time. It is always better to own than it is to lease.

Bill, as always your narrative hit the mark. I am a strong supporter of renewal energy, and have witnessed the solar industry in California take hold. The solar leasing program in California has assisted many middle class homeowners. Viewing the economic situation in California alone, the solar leasing program makes financial sense. If we can get everyone on board while the federal incentives are still available...perhaps the consumers will have available more spendable income to boost consumer spending!
Thanks!
Mary J

There are some big questions about leasing PV systems, which impact lower-income users in particular. Foremost is the lack of definition around end-of-lease term. The IRS defines Fair Market Value (FMV) of a leased system to be a minimum of 20% of the initial value. The IRS also defines an operating lease as requiring a FMV residual. This means that at the end of the lease term, the lessee faces the options of 1. a renewed lease at new terms, 2. removal of the system and subsequent exposure to higher utility rates, or 3. a buy-out of AT LEAST 20% of the original system value, and possibly more.

By and large, PV leasing companies do not have a clear response to this concern in my experience, and there is significant exposure to the lessee in signing an agreement with such unclear terms. It is also likely that PV leases will be bundled and sold on the secondary market, enhancing the probability that FMV will be maximized to enhance profitability. Having a leased system also can slow down the sale of a home, as a savvy buyer will be wise to their liability at end-of-term.

Borrowing money for a system, on the other hand (or paying cash outright if possible) has much greater long-term benefits, enhancing property value, accelerating sale of the home, and enabling the system owner to internalize ALL the benefits of the system for the entire system life. By the way, secured and unsecured loans requiring NO EQUITY in the home are available through Federal home improvement funds, so being underwater should not be an issue.

I understand that lower-income households may not be able to borrow funds to own a PV system, but remain concerned about the long-term impact of being a lessee in this situation.

Nice piece Bill. For all the hullabo about per watt pricing drops, how, in the long-term it's better to buy than lease solar, the yada yada from the paternalistic solar "experts" who know more than the average consumer, leasing's growing popularity comes down to two things:

-- People are used to, and comfortable with, a per-month model for paying for their electricity because that's what they've been doing forever, and they don't want to pay for 20 years of electricity up front, no matter the long-term savings;
-- People don't have $10k to $15k to put down up front for a home solar system --and forget the blabble about home equity loans: 25% of Americans are under water in their mortgages (including us) and have no equity to pull out a loan on.

On a different note, great to hear you want to plug an EV into your solar system. I've been writing about solar-charged driving for nearly 3 years now at SolarChargedDriving.Com (http://solarchargeddriving.com) and it's been very rewarding to see the growth in interest in EV + PV over this time period. BTW, we bought our 5.59 kW system outright in 2009. But I doubt we would have if leasing had been available in Colorado back then.